Signs You Need to Hire a Fractional CFO

A fractional CFO, also sometimes referred to as an outsourced CFO, is someone who essentially works for a company as a part-time contractor. Companies typically hire fractional CFOs for temporary coverage, during tax season, a product launch, or when an audit is coming up.

A fractional CFO may also be hired to help a company overcome specific financial management challenges if the existing team doesn’t have the skills or experience to do so. Such challenges include:

  • Low gross margins
  • High expenses
  • Cash flow problems
  • Outgrown systems
  • Need to reduce costs

Why You Need a Fractional CFO

You may want to hire a fractional CFO if your company is at a point in its expansion where you could use the extra knowledge and expertise of a CFO, but you don’t have the budget to hire one full time. Fractional CFOs are perfect for this type of situation because they don’t receive a full-time salary. Instead, they are paid by the hour. Some will even work remotely, so they don’t take up any space in your office if that is a concern.

Developing Financial Visibility for the Future

Another advantage of hiring a fractional CFO is that this type of professional can help your company develop a financial forecast that can help you get from where you are now, to where you want to be. He or she can help your company to use your capital more strategically and provide you with a blueprint for achieving growth as quickly and efficiently as possible. A fractional CFO can help your company develop a detailed financial forecast and prepare a budget based on that forecast.

Implementing Manageable Growth

Fractional CFOs also have the expertise to scale a business. Meaning, they can help you create a plan enabling your current operations to handle an increased workload while also improving your efficiency. The last thing you want is for company expansion to lead to confusion, poor communications, turnover, and lost sales. The ability to strategically scale a business helps you set the stage for supporting growth without it slowing down your company’s productivity. A fractional CFO can guide you through the many stages of scaling your company. They will begin by developing a detailed growth forecast. This forecast is based on the number of new clients you wish to acquire and the number of orders and revenue you wish to draw. He or she will then develop a financial forecast based on your systems and infrastructure, employees, technology, and the capability of these to handle new sales orders.

Helping Achieve Specific Goals

A fractional CFO is often brought into a company to support the business in attaining specific goals such as preparing for an acquisition, sale, or merger. Typically, fractional CFOs have experience raising millions of dollars of funding for companies of all sizes. Many of them have also overseen multiple acquisitions and mergers. In situations like this, a fractional CFO can help with:

  • Getting accounting in order
  • Developing financial forecasts
  • Adding validation to the company
  • Assisting with strategic relationships
  • Supervising due diligence
  • Analyzing contracts

Signs That a Company Might Benefit from an Outsourced CFO

Just like an in-house, full-time Chief Financial Officer, a fractional or outsourced CFO can help your business in so many different ways – which includes advice beyond the your financial numbers.  It is important to consider the following areas to see where your company is struggling. If you see these kinds of difficulties, then your company may benefit from a fractional CFO.

Reporting: Inaccurate or a general lack of proper reporting can cause problems when you are ready to expand your business.  You may feel as though you’re making decisions in the dark because you lack a genuinely accurate financial picture. A fractional CFO can make sure that you get all the information you need so that you can track important aspects of your business operations. He or she can also make sure your financial reports include all the information you need to scale your business, such as KPIs for your current stage of growth, actual costs, and overhead.

Accountability: The challenge here is to create a system of checks and balances so that financial duties and tasks are completed accurately, legally, and within a timely manner. Initially, you may have hired a bookkeeper to handle all your accounting needs, but as you grow the business, you need to make sure that your financial information is secure. The best way to do so is to divide responsibilities between different members of your team so that no single person has too much control. Separation of duties will help to protect your business from the risk of fraud. A fractional CFO can help you plan and implement these checks and balances.

Management: As a company owner, you may not have the skills or the time to crunch numbers – nor should you. If you feel intimidated when it comes to handling the financial reporting side of your business, it would be advantageous to hire a fractional CFO to guide your team so that they are continuously arming you with financial and operational insights including more time focused on value-add activities. That way you can rest assured that invoices go out as expected and payments are received and processed on time. The delegation of these duties also always you to focus on what you do best, which is focusing on your vision to run and grow your business.

Strategy:  As the owner, you need continuous access to timely and accurate financial information, and at times you may even require help in understanding how to use it. Accurate and timely financial reporting is the key to formulating a sound and measurable business strategy. If you don’t have this data, you won’t be able to develop a solid business strategy to help you reach your goals. A fractional CFO is a member of your executive team and acts as your partner in advising financial leadership which enables you to refine your overall business strategy.

Raising Capital: Don’t let your company stumble along with incomplete financial data.  The ability to attract great lenders and investors becomes an actual reality only if you can show them a fully-developed financial picture. A fractional CFO can help you develop accurate and complete financial reports of your company’s history and its future projections. This data is vital when you want to secure capital to help your company grow.

What to Expect from an Outsourced CFO

Here’s what you can expect from your outsourced CFO:

Get to know your business: The first thing your interim CFO should do is take time to get to know you including your vision and goals for your business. To get you on track, he or she will need to be aware of any financial issues your company is facing. This process requires an in-depth conversation about your financial status.

Calculate your break-even point: Your break-even point is a pivotal point to your business plan, in spite of this not many business owners pay it much attention. This attitude is commonplace because many do not know how to calculate it. Your fractional CFO will be able to do this for you.

Reduce the gap between receivables and payables: A fractional CFO will want to make a comparison of sales in the company’s accounts receivable and accounts payable. For example, a wide gap would be if your company is collecting receivables in 70 days and paying the sources in 30. The CFO will help you bring down your receivable accounts.   

Improve your company’s margins: An experienced interim CFO can help you calculate and understand the significance of your profit margins. By improving the margin even by a small percentage, you can significantly boost your revenue and see an immediate impact on your business.

We Can Help

Contact us if you’re noticing that your company is suffering from any of the issues discussed, it’s time to hire a fractional CFO to get your business in order. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.